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Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of: )
)
Annual Rate Adjustment System )
for Cable Service Rates )
)
Request for Waiver of Requirements )
Contained in the Thirteenth Order on )
Reconsideration )
ORDER
Adopted: August 8, 1996 Released: August 8, 1996
By the Chief, Cable Services Bureau:
INTRODUCTION
1. On July 16, 1996, Tele-Communications, Inc. ("TCI") requested a waiver of
certain rate adjustment requirements contained in the Thirteenth Order on Reconsideration
("Order"). In the Order, the Commission created a new, annual rate adjustment system for
modifying cable services rates regulated pursuant to Section 623 of the Cable Consumer
Protection and Competition Act of 1992 ("1992 Cable Act").
BACKGROUND
2. Under the 1992 Cable Act, cable rate regulation is undertaken jointly by the
Commission and by local franchising authorities ("LFAs"). For purposes of allocating regulatory
responsibility over the rates for services offered by cable system operators, the 1992 Cable Act
divides regulated cable services into two categories.
3. The first category is the basic service tier ("BST"), which includes, at a minimum,
the local broadcast signals distributed by the cable operator and any public, educational, and
governmental access channels. Regulation of rates for BSTs is the responsibility of certified
LFAs, pursuant to standards and procedures established by the Commission. The second
category are cable programming service tiers ("CPSTs"), which include all video programming
distributed over the system that is not on the BST and for which the operator does not charge
on a per channel or per program basis. Under the 1992 Cable Act, CPSTs were subject to
regulation by the Commission only if the Commission received a complaint from a subscriber
or local regulatory authority regarding an operator's CPST rate. The Telecommunications Act
of 1996 requires that a CPST complaint be filed by an LFA after it receives subscriber
complaints.
4. Pursuant to the 1992 Cable Act's rate regulation requirements, we established a
system of rate regulation to set initial BST and CPST rates that ensures subscribers pay
reasonable rates for regulated cable services. The Commission also adopted a price cap approach
to govern how operators can adjust their rates on a going forward basis following the
establishment of initial rates. Under the original price cap approach ("quarterly rate adjustment
system"), operators adjust their rates to reflect changes in external costs and changes in the
number of regulated channels up to four times per year. Operators make these rate adjustments
by filing an FCC Form 1210.
5. After gaining experience with the quarterly rate adjustment system, the
Commission adopted a new optional rate adjustment methodology where cable operators make
only annual rate changes to their BSTs and CPSTs. The annual rate adjustment has two
components. The first component is based on an operator's projected costs and the second
component is based on costs that an operator has actually incurred. According to the Order,
operators that elect to use this optional methodology will adjust their rates once per year based
on a maximum permitted rate that accounts for reasonably certain and reasonably quantifiable
changes in external costs, inflation, and the number of regulated channels that are projected for
the 12 months following the rate change. In addition, a "true up" mechanism is available to
correct differences between the revenues the operator collected and the actual cost changes that
occurred during the preceding 12 month period. If an operator has not recovered the actual costs
it incurred, the operator is permitted to add the cost to rates at a later time, with interest. The
true up requires operators to return to subscribers any overcharges that occurred, with interest.
6. Annual adjustments are justified on an FCC Form 1240 ("Form 1240"). Regulated
operators using the annual methodology that seek to adjust rates on the BST must file Form 1240
with local franchising authorities a minimum of 90 days before the rate adjustment is scheduled
to go into effect, and with the Commission a minimum of 30 days before a CPST rate adjustment
is scheduled to go into effect. BST and CPST rate increases must be scheduled to take effect
at the same time.
WAIVER REQUEST
7. TCI chose to use the annual rate adjustment option on all of its rate regulated
systems, and has obtained a uniform implementation date for all such systems. On or about
March 1, 1996, TCI submitted its first-time Form 1240 filings to the LFAs for its rate regulated
systems in order to effectuate a BST rate adjustment implementation date of June 1, 1996.
Similarly, Viacom Cable ("Viacom") chose to use the annual rate adjustment option on all of its
rate regulated systems, and has likewise obtained a uniform implementation date for all such
systems. On or about June 1, 1996, Viacom submitted its first-time Form 1240 filings to the
LFAs for its rate regulated systems to effectuate an expected BST rate adjustment implementation
date of September 1, 1996. On July 31, 1996, TCI acquired Viacom's cable systems, which had
approximately 1.2 million subscribers, increasing TCI's total subscribership of approximately 12
million by approximately 7%.
8. In anticipation of the consummation of the acquisition, on July 16, 1996, TCI filed
a request for a waiver of the Commission's rules to permit TCI to obtain a uniform date for
implementing BST and CPST rate adjustments on its regulated systems and the Viacom cable
systems TCI expected to acquire on July 31. TCI proposed to amend Viacom's June 1, 1996,
Form 1240 filings using TCI's projected costs, and to spread the cost increases reflected in the
amended Form 1240 over a period ending May 31, 1997. TCI asked that it be allowed to use
a nine month projected cost period as opposed to a 12 month projected period in filings for BST
and CPST rates for the Viacom systems in order to align future adjustment dates for TCI systems
and the Viacom systems to be acquired by TCI. Specifically, TCI requests a waiver with
respect to filings for Viacom systems in 1996 of the Commission's rules that require an operator
(i) to project costs for the 12 month period following the date the operator is scheduled to make
its rate adjustment (47 C.F.R. 76.922(e)(2)); (ii) to wait at least 12 months between
implementation of annual Form 1240 rate adjustments (47 C.F.R. 76.922(e)(1); and (iii) to use
an official Commission form to change tier rates (47 C.F.R. 76.922(f), 76.930 and 76.956(a)).
9. TCI submits that eliminating the disparity between its regulated tier rate adjustment
implementation date (June 1) and the originally proposed Viacom rate adjustment implementation
date (September 1) will help avoid subscriber confusion, particularly in areas where the TCI and
formerly Viacom franchises are adjacent or where the same LFA regulates both TCI and formerly
Viacom systems. Additionally, TCI states that it plans to use the Form 1240 on an annual basis
for future rate adjustments, and argues that a waiver would reduce administrative burdens for
those communities that regulate both TCI and formerly Viacom systems, because this one-time
waiver would hereafter allow Form 1240s to be filed at the same time each year, and Form 1240s
would thus include the same basic cost information. TCI states that since its programming costs
are generally lower than Viacom's programming costs, the amendment to the Viacom forms will
result in lower rates for some customers that subscribe to the formerly Viacom systems on the
proposed implementation date than would be the case if the original Viacom filings were
maintained. In addition, if the amended Form 1240 BST rate is higher than the rate that would
have been obtained under the Viacom Form 1240s, TCI states that it will implement the lower
Viacom Form 1240 BST rate for such BSTs. If an LFA's review of a Viacom Form 1240 finds
that, for example a lower assumption (for example, an inflation factor) should have been used,
the lower assumption will be applied to the Viacom Form 1240 and to TCI's amended Form 1240
filing rate, without a separate review by the LFA of the assumption used in TCI's amended Form
1240. The lower rate will then be used.
DISCUSSION
10. The 1992 Cable Act directed the Commission to "seek to reduce administrative
burdens on subscribers, cable operators, franchising authorities and the Commission" in meeting
its mandate of creating regulations that ensure that subscriber rates for regulated services are not
unreasonable. The Commission created the annual rate adjustment system in order to streamline
the rate review process in a way that benefits subscribers, cable operators and local regulatory
authorities. Annual adjustments limit subscriber confusion and frustration because subscribers
do not have to contend with numerous rate adjustments each year. Regulatory authorities also
benefit because the annual system minimizes the amount of rate adjustments reviewed each year.
11. Upon review of the facts and circumstances present in this case, and in conjunction
with certain conditions which we impose, we believe good cause exists to grant TCI's request for
a waiver of the Commission's rules so as to permit TCI the ability to implement regulated rate
adjustments on the formerly Viacom cable systems at the same time it implements its TCI annual
BST and CPST Form 1240 rate adjustments. We believe that in this case a waiver of our rules
will provide benefits to both subscribers and LFAs. We note that there are approximately 1.2
million subscribers in the franchise areas acquired by TCI from Viacom and that a "substantial
majority" of the acquired Viacom systems are in franchise areas that are either adjacent to or
shared with TCI systems. We believe that TCI's proposal to conform the timing of regulated tier
rate adjustment schedules for subscribers in these areas will avoid undue subscriber confusion
for a significant number of subscribers nationwide in the future.
12. The affected LFAs will also benefit. Absent a waiver allowing a single amended
Form 1240 filing with a nine month projected period, in order to align the BST rate adjustment
dates of the formerly Viacom systems with those of the historically owned TCI systems without
postponing all rate increases for the nine month period, TCI would be required to withdraw the
Form 1240s filed by Viacom and file in their place two quarterly adjustments forms (on FCC
Form 1210) to recover cost increases. This alone would place additional burdens on the LFAs
due to the increase in the number of rate filings that would require rate review and would impose
an additional round of increases on subscribers. Also, conforming TCI's newly-acquired Viacom
cable systems' annual rate adjustment schedule to TCI's cable systems' annual rate adjustment
schedule will result in the same projected periods for the systems, thereby streamlining rate
reviews for LFAs that regulate both TCI and formerly Viacom franchises because the cost
information for the same projected periods would be substantially similar. Fewer rate
adjustments and streamlined rate reviews are part of the overall goal of the annual rate
adjustment system. We also take note of the fact that both TCI and Viacom had attempted to
put in place a uniform rate adjustment schedule across their regulated systems by aligning the
filing deadlines for all of their cable systems. The efficiencies of such a practice will be lost for
both TCI and Viacom if both cable systems, now operating as one, are required to have two
separate rate adjustment schedules.
13. Additional benefits will transpire to subscribers and the LFAs. TCI will be
required to charge the lower of Viacom's Form 1240 BST rate or TCI's amended Form 1240 BST
rate. Thus, Viacom subscribers will pay the same as or less over the projected period than they
would if the waiver was not granted and the Viacom filings were left in place. TCI estimates
that the Viacom subscribers will pay approximately $160,000 less over the projected period if
the lowest BST rates are used from Viacom's Form 1240 or TCI's amended Form 1240 than if
the Viacom filings were left in place. Further, as a condition of the grant of this waiver
request, TCI may not in future rate adjustments seek a true-up for any amount it forgoes on a
BST rate because of the selection of a lower Viacom rate for the period to June 1, 1997.
14. TCI submitted an amended version of FCC Form 1240 with its July 16, 1996
waiver request. TCI states that this amended version is for a one-time use for its newly acquired
Viacom cable systems, for the purpose of aligning Viacom's Form 1240 (June 1) regulated rate
filings with TCI's Form 1240 (March 1) filings. The amended version is designed to permit
implementation of the next rate adjustment for the Viacom cable systems (subject of the instant
waiver request) to occur on June 1, 1997. We have reviewed TCI's version of Form 1240, and
find that it accurately carries out the objectives of achieving conforming time schedules for
regulated tier rate adjustments for the formerly Viacom cable systems and the TCI cable systems.
15. Given the totality of the above described circumstances, we find good cause to
grant a waiver of our rules to allow TCI to align the formerly Viacom cable systems' rate
adjustment schedule with TCI's cable systems' rate adjustment schedule. We believe a significant
subscriber base, as well as the affected LFAs, will benefit by conforming the filing dates of the
two rate adjustment schedules. We did not receive any formal opposition in response to our
public notice of TCI's waiver request. Several communities served by the formerly Viacom
systems acquired by TCI wrote informally to the Commission to express their support of TCI's
waiver request.
16. Accordingly, in order to allow a one-time projected period of nine months for
regulated rate adjustments for cable systems TCI acquired from Viacom, we grant TCI's requested
waiver of our rules that require a projected period of at least 12 months. Specifically, we waive
the requirement of 47 C.F.R. Section 76.922(e)(2) (the projected period in the Form 1240 covers
"the twelve months following the date the operator is scheduled to make its rate adjustment"),
and the requirement of 47 C.F.R. Section 76.922(e)(1) ("at least twelve months must pass before
an operator can implement its next annual adjustment"). We also waive the requirements under
47 C.F.R. 76.922(f), 76.930 and 76.956(a) (which require the use of official FCC Forms to
effectuate regulate tier rate changes). This waiver applies to the From 1240 projected period for
both BST and CPST rate adjustments for cable systems TCI acquired from Viacom. We will
permit TCI to use this amended version of Form 1240, for a one-time projected period of nine
months for these acquired systems. This waiver applies solely to Viacom systems acquired by
TCI, and is a one time waiver. TCI's subsequent filings shall not reflect a projected period of
less than 12 months.
ORDERING CLAUSES
17. Accordingly, IT IS ORDERED that the Tele-Communications, Inc. waiver
request IS GRANTED.
18. This action is taken by the Chief, Cable Services Bureau, pursuant to authority
delegated by Section 0.321 of the Commission's rules, 47 C.F.R. 0.321.
FEDERAL COMMUNICATIONS COMMISSION
Meredith J. Jones
Chief, Cable Services Bureau
ATTACHMENT
System CUID Franchise Authority
Tri-Valley CA0353 City of Dublin
CA0354 Contra Costa County
CA0356 City of Livermore
CA0360 City of Pleasanton
CA0364 Alameda County-Sunol
CA1115 City of San Ramon
Castro Valley CA0238 Alameda County
Pittsburg CA0351 City of Antioch
CA0359 City of Pittsburg
CA0365 Contra Costa County-Bay Point
Pinole CA0070 Contra Costa County-San Pablo
CA0075 Contra Costa County-Crockett
CA0924 Contra Costa County-Rodeo
Marin CA0050 Town of Fairfax
CA0051 City of Mill Valley
CA0052 Town of San Anselmo
CA0054 Town of Tiburon
CA0166 City of Sausalito
CA0168 City of Sausalito
CA0352 Town of Corte Madera
CA0355 City of Larkspur
CA0361 Town of Ross
CA0362 City of San Rafael
CA0363 Marin County
CA0527 City of Belvedere
CA1518 Town of Tiburon
Healdsburg CA0111 City of Healdsburg
CA1513 Town of Windsor
Napa CA0407 City of Napa
Salem OR0057 City of Salem
OR0195 Marion CountyATTACHMENT
System CUID Franchise Authority
Puget Sound-North WA0013 City of Mukilted
WA0029 City of Sultan
WA0038 City of Monroe
WA0191 Oak Harbor
WA0204 City of Lynnwood
WA0228 City of Mountlake Terrace
WA0325 City of Brier
WA0396 City of Mill Creek
WA0548 City of Marysville
Puget Sound-Central WA0076 City of Bellevue
WA0110 Mercer Island
WA0111 King County-Sheridan Beach
WA0112 City of Seattle
WA0118 King County-Comm Telecable
WA0148 City of Bellevue
WA0150 King County-Vista
WA0151 City of Redmond
WA0160 City of Lake Forest Park
WA0310 City of Kirkland
WA0330 City of Bellevue
Puget Sound-South WA0041 City of Fircrest
WA0043 City of Milton
WA0049 City of Puyallup
WA0050 City of Sumner
WA0180 Pierce County
WA0181 King County-Lee Hills
WA0245 Town of Steilacoom
WA0262 City of Tacoma
WA0308 City of Bonney Lake
WA0403 City of Dupont
WA0405 City of Yelm
WA0413 King County-Vashon Island
WA0423 Town of Carbonado
WA0552 Pierce County-Bonney Lake
WA0554 City of Federal Way
Dayton OH0453 City of Dayton
Nashville TN0148 City of Nashville